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Key Success Factors in Social Web Businesses

Key Success Factors in Social Web Businesses

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Published by andrewychen
In this document, we uncover the results of our studies to define key success factors for social web ventures. Any entrepreneurs or marketers interested in understanding the value of Facebook, Twitter, YouTube and Flickr would find value in our research and conclusions.
In this document, we uncover the results of our studies to define key success factors for social web ventures. Any entrepreneurs or marketers interested in understanding the value of Facebook, Twitter, YouTube and Flickr would find value in our research and conclusions.

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Understanding Key Success Factors for Social Web Ventures

Andrew Chen Joseph Dwyer Lisa Nagatoshi Marcin Pietrzak Deepak Tiwari

Summary Our research demonstrates that social web ventures share many similarities, particularly within segments. By evaluating historical performance and analyzing underlying trends and drivers, we propose two fundamental rules of the social web: 1) focus on providing consumer value. Second, facilitate movement up the value creation hierarchy, and 2) social web ventures leverage innate human social needs to offer superior value to consumers.

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Table of contents Section The dot-com bust and resurgence Social web ventures The User Participation Hierarchy Four hierarchical roles Social web disrupts the status quo ante Rule #1: Focus on providing value to consumers Rule #2: Encourage consumer movement up the hierarchy Capturing the value created Tools for applying the framework Measuring value within social web ventures The long tail of consumer value Contributory factors Expected value of contribution Contributory factors Applying the framework Future Integration of traditional media with social web ventures Collaboration and competition among social web ventures Vulnerability to earlier lifecycle startups Conclusion References Page 3 3 4 5 5 8 10 11 12 12 13 15 16 17 18 21 21 22 23 24 24

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Understanding Key Success Factors for Social Web Ventures
The dot-com bust and resurgence In the early days of public internet during the 90s, investors poured billions of dollars into startups. In turn, the startups invested tremendous sums into acquiring as many users as possible1. Revenue was a distant end-goal and was rarely discussed in the early years. The well accepted strategy for these firms focused on gaining a firstmover advantage and relied on positive network externalities to create user “stickiness”. In turn, these advantages would lead to presumed monetization opportunities in the future. Furthermore, it is difficult to discount the effect of mimetic isomorphism – the human herd instinct. As early ventures received positive feedback in the form of easy funding, high valuations, and public accolades, masses of entrants flooded the internet landscape – all seeking the IPO pot of gold. The dot-com bubble burst in a spectacular fashion. By September 2002, NASDAQ had lost over $4.4 trillion in market capitalization since its peak in March 2000. More than 100,000 dot-com employees lost their jobs in the 10 months between October 2000 and July 20012. Many companies closed their doors. The survivors retrenched, focusing anew on revenues and near-term profitability. Venture funding largely dried up. Despite financial and market challenges after the dot-com crash, some companies not only survived, but flourished. Also many new internet sites emerged. Google hurtled past incumbent search engines like Yahoo and AltaVista. EBay grew steadily, piling up its cash reserves. Friendster and then MySpace appeared without warning. In 2005, YouTube began its meteoric rise. By 2007, we are witnessing a full-strength resurgence of consumer internet sites. Social web ventures These sites, which have been successful in the period following the dot-com bubble burst, all share one thing in common: they are to one extent or another social web ventures. These ventures harness the social interests of their customers to create value, enabled by an internet platform. This category includes obvious players such as MySpace, YouTube, Flickr, Wikipedia, and Digg. A less obvious example is eBay, a sort of social commerce site where reputation determined by other users plays one of the key roles in the platform’s success. Sites like Yahoo, AOL, and MSN are also social web ventures, but to a lesser extent. They aggregate users, often grouped based on common interests. Social recognition, polls, and comments bring some level of community to each of these sites.
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http://www.strategy-business.com/press/article/07102?pg=1 http://www.strategy-business.com/press/article/07102?pg=4

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Blogs often create de facto social web ventures. Users create online social identities, and share their thoughts and viewpoints in the form of comments. The most successful blogs focus on specific user communities that share an interest in a common industry or topic. Even Google’s search engine is a social web venture. Its algorithms sort out implicit votes for millions of web sites, as decided by the (admittedly loose) community of webmasters across the world. Even this indirect collaboration was sufficient to power Google past competitors such as AltaVista, which did not leverage consumer contribution in indexing and ranking. This emerging market offers substantial commercial opportunity, and yet most investment and management decisions to date have been largely based on instinct and vague notions of what the market wants. As a result, thousands of social web sites have emerged, but only a few have been successful. The goal of this paper is to create a framework that will identify the key factors that differentiate success from failure among social web ventures. Our user participation hierarchy concept provides a framework for evaluating success in social web ventures. Understanding what differentiates successful social web ventures provides an opportunity for entrepreneurs, managers and investors to reduce risks and improve results. Moving forward, the framework serves as a powerful tool to develop, evaluate, and execute strategies to be successful in the social web space. Our tool incorporates both qualitative and quantitative measures to evaluate and guide future ventures. The User Participation Hierarchy Traditionally, mainstream media content has been created by a few select entities. Hollywood studios, big record labels, newspaper and television journalists are each examples. These producers created small libraries of content and generated significant value by attracting large audiences of unique consumers through limited distribution channels like cinema chains, music stores, and television networks. This top-down value creation model concentrated power in the hands of select creators and distributors. At the same time, consumers created content, like photos and written content, which were shared primarily with their friends and family. The development of this usergenerated content contrasted sharply with the top-down value creation model of traditional media as there were millions of creators and millions of content items. The mass distribution of this user-generated content was limited by technological constraints. In recent years, these technological constraints have been removed due to the emergence of the Internet. As broadband penetration has grown, the Internet has become a disruptive channel for content distribution. At the same time, the increasing comfort of consumers with online activity has changed the way that content is consumed. Traditional media, like television shows and movies, are now

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Even for relatively mature social ventures the fraction of people collaborating and creating is fairy small. It is also rapidly blurring the divide between the consumers and the creators as consumers move up the hierarchy through collaboration. The base role involves passive consumption of value. Four hierarchical roles Our user participation hierarchy describes four hierarchical roles users can play in social web ventures. the number of participants decreases as we climb up the hierarchy. user-generated content can now be shared with a mass audience. The social nature of these ventures encourages and incentivizes interaction and contribution. collaborators. At the same time. the level of participation at different levels in the hierarchy is one of the distinguishing factors of the successful ventures. The schema below gives a graphical representation of the hierarchy and defines various roles in detail. Finally. and comprises the most common user role. The roles are arranged (from bottom to top) in order of increasing participation. and consumers.accessible online and can be viewed on demand anytime by consumers. and creation. However. rating. As we would expect. they may begin participating as collaborators by tagging. although users and other sites can also act as distributors by participating in presenting the content elsewhere on the web. reviewing. As users recognize value and the social incentives to participate.creators. setting off an explosion of new types of content like blogs. Figure 1 The User Participation Hierarchy Page 5 of 25 . for example on MySpace pages. who actually generate original content for the site. The site itself is the primary distributor in the hierarchy. distributors. This online phenomenon is changing the rules of media creation and creating a new hierarchy of participants . commenting. distribution. and online videos. the peak comprises creators. wikis. social imaging sites. and responding to the original content on the site.

reviewing. In traditional media.g. and skills to the creation of original content. The chart below demonstrates the approximate relative volumes of the individuals who comprise the traditional movie and film industry versus the similar distribution on YouTube. In some sense they work as filters by cross-planting content that is high quality and provides value. distribution. their participation expands to include additional roles. An ideal website would make it easier for consumers to become collaborators. ideas. Distributors: Person(s) who provide outlets and utilize channels for consumption of content. tags. bringing a broader array of perspectives. interests. Social web disrupts the status quo ante Social web sites introduce the means for a much broader group to participate in creation. commenting. Non-commercial users (typically individual and purpose specific creators) create the majority of the content and occupy the long tail. websites. The commercial (typically mass media) creators occupy a narrow high traffic band. and collaboration. reviews. or comments). Consumers: Person(s) who passively consume content without adding any value to the content itself. and collaborators comprise a minority of the market. This evolution of the content creation model creates a substantial increase in consumer utility through greater variety and volume of content. But we would point out that consumers in fact do passively add value to the creators by spending time on the content. Distributors use word of mouth to spread ventures. Collaborators could themselves be subdivided based on level of involvement – tagging. creators. These people seed the original idea and occupy the top tier of the user participation hierarchy. distributors. These people are credited with cross-fertilization of the content which they take from original channel and inject into other channels. The consumption activities are also mainly of two types based on frequency distribution: a narrow band where high frequency of unique consumers occurs and the long tail where most of the consumption takes place. Thus each view constitutes a value activity for the content and the website.Creators: Person(s) who define and create the original content. Collaborators: Person(s) who add secondary value to the content (e. The social web dramatically increases the scope of involvement. Page 6 of 25 . and content. and a relatively small percentage of the user population falls into those categories. and responding. Based on the frequency distribution there are mainly two types of creative activities: commercial and non-commercial. As users move up the user participation hierarchy. rating. The value added is highly dependent upon the level or service and options provided by the social ventures.

Distributors . This cycle is the life-blood of successful Page 7 of 25 . On YouTube creators and distributors comprise approximately 1% of the population with original content on the order of 10 million videos as of 2007. distribution.producers. Collaborators . Better content leads to increased consumer satisfaction.cinemas. The value provided also increases as we climb up the ladder. and creation they add further value through each activity.Traditional US movie and film business Creators . networks. which induces further contribution up the value hierarchy. etc. actors. In traditional media this percentage is relatively miniscule even if we assume that hundreds of thousand of people are employed in creative roles. As traditionally passive consumers take on a more active role through collaboration. etc. More consumers and higher consumption in turn increase the social value of contribution.critics. commentators Consumers YouTube Creators Distributors Collaborators Consumers Figure 2 Shift in breakdown of players in media ecosystem Note: Actual sizes of particular groups differ by type of social web site. This significantly increases the content value and is the beginning of a positive value creation loop. which in turn leads to an increase in the number of consumers and more consumption per consumer.

com/press/article/07102?pg=2 “Drugstores. Yet a quote from a user suggests that the value provided did not meet consumer expectations: "In the time that elapsed since I placed the order. washed the dishes. only two years after its initial public offering. which is three blocks away. These fundamental rules are: 1. crawled back home. Which group deserves the most attention when making value creation decisions? Should sites cater to creators because they create the content that drives the site? Our research suggests that the most effective focus on value creation centers on the consumer role. spent less money for the exact items I wanted. Consumer attention is the currency of the web. advertisers). it is hard to provide value. Not surprisingly. Although these companies covered the spectrum of possible media – video. WebVan and Dot-Com Failure”. and most also include a commercial partner (e. social networks – the successful ventures consistently followed two rules. site operators considered the web an extension of traditional modes of business. albeit with significant centralization benefits. blogs. It is for this reason some believe 3 4 http://www. It is even more critical in the early phases of the venture when creators and distributors need to seed the venture with content to encourage the positive value creation loop. Providing consumer attention is a certain way to provide value to creators.ventures. Monday Memo. followed by ice cream and coffee. Webvan had failed to provide value to their consumers."4 Clearly.mondaymemo. Since the dot-com crash. distributors. and collaborators. prepared and eaten my own meatloaf.net/000724feature. had a good night's sleep and clocked in a full day at work. During the first wave of internet enthusiasm. Consumers pay attention when sites provide them with value. Encourage and facilitate consumer movement up the hierarchy Rule #1: Focus on providing value to consumers Social web ecosystems include at least four user roles.htm Page 8 of 25 . Transactions on social web sites typically involve consumer attention in return for advertising dollars. photography. Webvan declared bankruptcy in 2001. a number of web ventures have sprung up to take advantage of this growing trend of social media. But what is the best way to provide value to consumers? For a social web company that has no initial content to start with. http://www. For example. I could have crawled on all fours to my neighborhood supermarket.strategy-business. Focus on providing value to consumers 2.g. Webvan raised hundreds of millions of venture capital dollars based on the promise to revolutionize the grocery industry3.

eBay recognized the importance of providing value to the consumers. Therefore. while people’s relocation choices are influenced by amenities. crossing the line from consumer to distributor or creator. as in traditional media. Similar to the social web. Therefore. One might argue that without stores and restaurants. consumers are the most important players in the user participation hierarchy. people are less likely to relocate to an area. Because consumers drive the magnitude of value generated by a site. However. Creating core content is often required to provide consumer value. This pattern repeats itself in the offline world as well. Google Video. it is more efficient to maximize consumer value and share some part of that value with creators. the focus should remain on consumer value as the end goal. assuming that the trickle-down value to consumers will be sufficient. However. Consumers are therefore the yardstick for measuring corporate value. if most of eBay’s sellers left. Today. and most recognize that amenities follow population growth. and collaborators. They are the largest category of users and most revenue models of social web companies are dependent on them. the inertia of the consumers would simply lead to replacement by other sellers from within the ranks of the consumers. history has demonstrated that social web ventures which focus on incentivizing its creators over its consumers end up losing. However. it is the people themselves who often open small businesses in booming areas. Maslow’s Page 9 of 25 . commercial interests are entirely dictated by consumer actions. it remains sensible for sites to spend considerable effort early in their growth cycle in encouraging creators. stores and restaurants appear where people are. eBay’s competitive advantage arises from consumers. However. For example. the net increase in consumer value in turn provided more creator value because increased consumers confidence led to more sales. at some expense to the auctioneers. Furthermore. and Google Answers are all examples of social products that lost to competitors because they focused too much on compensating their creators (see Appendix for additional information). However. and collaborators. By implementing social “feedback ratings”. Metacafe. typically in the form of social recognition. It is this relatively easy movement up the content hierarchy that drives the importance of consumer satisfaction. distributors. Meanwhile. because without them eBay’s sellers would quickly evaporate. Although in social sites there is a blurring of the lines between the roles of users. Ebay is an example of a site that began with an emphasis on providing value to (auction) creators. they provide the true value to creators. consumers derive value from a broader array of sources. Rule #2: Encourage consumer movement up the hierarchy Successful social web players recognize that some consumer needs play a far more powerful role on the web than they would in traditional business. eBay provided information that substantially increased consumer value. distributors.social websites should cater to its content creators. not the other way around.

As the internet has become a social activity. YouTube users upload and share over 70. and publish playlists of favorite video content. Successful social web sites encourage and facilitate user movement up the user participation hierarchy. The result is a social network that provides substantial value to consumers. When users can participate in a community. Many internet pioneers assumed that positive network externalities arose solely from the number of users a site accumulated.0 companies was their lack of revenue model. and encourages movement up the user participation hierarchy. and creating original content represent fundamentally appealing activities for consumers. Web 2.Hierarchy of Needs suggests that humans fulfill base needs first. Every day. viral marketing. and more effectively shares what is created. and only move up the hierarchy as core needs are met. marking favorites. flagging. Collaboration increases the amount of value created.0 companies on the other hand typically provide social platforms. successful business is about creating and capturing value. EBay was an early success in creating positive network externalities through social means. which in turn encourages further movement up the hierarchy. tagging. technology and business solutions such as Google Adwords provide revenue opportunities with relatively little delay and investment. sharing (distributing) content with friends. and ultimately have a chance to achieve self-realization. In addition. For example YouTube users can easily collaborate through rating. these features were introduced on the site earlier than competitors and were more prominently displayed and more easily used when compared to its competitors. and opensource software have substantially reduced development and deployment costs. Collaborating with other creators. and users create and collaborate on the content. However. consumer-driven content creation. the most powerful positive network effects on the web arise from social community. Successful social sites include features that encourage participation with minimal input. unlike their predecessors. and consumers quickly became creators (sellers) enabling them to build a social and commercial reputation. Their users communicated with each other. The result is a hugely satisfying experience to consumers.000 new videos. consumers are increasingly using the web to address their hierarchy of needs. Finally. earn recognition. The result of movement up the user participation hierarchy is additional value creation. today’s successful sites are creating substantial consumer value and positive network externalities. which increases positive network externalities. Most Web 1. numbers alone do not create “stickiness”. However.0 companies relied on content to drive traffic. Capturing the value created One of the greatest criticisms of many Web 1. In the end. the result is a powerful “stickiness”.0 sites still have no credible short-term path to profitability. Page 10 of 25 . Similarly many of today’s most successful Web 2. and commenting. It is therefore critical for social web ventures to facilitate consumer evolution to collaborator and creator. leave several hundred thousand comments.

has successfully maintained its position despite increasing pressure from many video sites. for example. 5 “The Big. we recommend waiting until the point of diminishing growth prior to incorporating revenue generation that reduces consumer value or movement up the customer value hierarchy. the basis for revenue implementation decisions should be an exponential curve (see figure 3). which launched nearly two years before YouTube.Metcalfe’s Law suggests that the value of a network grows as the square of the number of users5. Most revenue models. this suggests that the larger the potential market for a site. s+b. such as advertising or charging fees for services. sites can begin to capture value with much lower risk of losing customers. Given an assumption of exponential growth. This mirrors the relative market share differences between the two leaders and their closest competitor [Table 1]. We observe that the collaborator to consumer ratio is slightly higher on MySpace but of the same order. Once the critical mass is achieved and revenue model is implemented the network effects would help sustain the traffic. YouTube. Martha Turner. In turn. After reaching an appropriate inflection point. Given the nature of social community and value creation. reduce consumer value. presenting an effective barrier to collaboration. By doing so. and the Beautiful. Metacafe. Meanwhile. continues to trail far behind the market leaders. it seems likely that consumer value does rise exponentially rather than linearly. because the total net value is higher than it would be for a smaller network. Winter 2003 Page 11 of 25 . which benefits from a huge existing community. in part due to a lack of focus on consumer value. the longer the company should wait to grow its user base before establishing a revenue stream.” by Tim Laseter. both YouTube and MySpace are better by at least an order of magnitude over the competitors. This is evident on Metacafe where ads are placed directly above the comment area. sites maximize enterprise value by creating as much consumer value as possible. the Bad. Thus once the goal is determined the venture must implement tactics to increase the rate of viral growth. Note that it is important to wait till the critical mass is reached and the actual length of time would depend on the rate of growth. Its closest competitor is MySpace Video. To maximize corporate value. and Ron Wilcox. Yet the venture must continue to innovate and add value in order to maintain market position.

Google’s valuation of YouTube. a useful proxy for measuring the value provided is the time spent on a website by consumers. and even strategic sale. and visits. Sites can capture this value through advertising. Tools for applying the framework Measuring value within social web ventures The transaction on social web sites is unique in that visitors create and extract value at the same time. and users can leave at will. Consumers trade their time and attention in return for value provided by the content. we propose an objective measure of the value provided by a site to its consumers based on the time consumers spend on the site: Value created = Number of Visits × Average time spent per visit Overall. Meanwhile. visitors. this measure of “value” is more robust than existing metrics of online activity like number of page views. The emergence of new technologies like Flash and AJAX has reduced the relevance of page views as users can now access content without refreshing web pages. Therefore. some potential revenue streams such as virtual goods may actually enhance user value.Revenue inflection point Total Addressable Market Time delay prior to revenue model implementatio n Figure 3: A hypothetical revenue inflection point Notably. virtual goods. it stands to reason that users leave a site when it ceases to provide a minimum level of value to them. Therefore. As a result. Creators produce content in return for the social value created by consumers and collaborators using the site. Therefore. The web is a fluid medium. implementation of these offerings should likely occur far earlier in the site lifecycle. This creates a positive value cycle. other metrics like Page 12 of 25 . was driven largely by the volume of consumer use. for example.

High cost to produce the content acts as barrier to entry for a newcomer. Page 13 of 25 . Therefore. It essentially tells us the expected social value that an average content will get or create. The figure below illustrates this phenomenon. For example. The long tail of consumer value The internet has enabled the growth of the so-called long tail of less mainstream products and services. Traditional Media New Media Social Media Value Provided Value Provided Value Provided total value provided total value provided total value provided Catalog of content Catalog of content Catalog of content Figure 4 . We can observe the long-tail of consumer value by rank ordering the contents by value created. The relatively high budgets and experienced creators of movies. the measure Average value per content items serves as the foundation for the “Long Tail of Consumer Value”. national newspapers. Derivative calculations can provide further analytical data. it is important to understand users’ level of engagement given the shift to social online activity. and authors result in high consumer value in the left side of the graph.number of visitors and visits continue to provide useful information in regards to size of user base and frequency of activity. Meanwhile. as the variety of content is limited by budgets and broad targeting requirements. Average value per user = Value created / Unique users Average value per content item = Value created / Number of content items These metrics illustrate the value provided through broad network effects and an extensive library of content. Average measures provide useful benchmarks in terms of understanding the overall level of engagement of users as well as the concentration of time spent across a website’s catalog of content.The Long Tail Phenomenon in New Media Traditional media offers a narrow catalog of content designed to be of value to broad audience segments. Amazon has leveraged the interests of consumers in niche catalog items while capitalizing on the limited physical shelf-space of traditional book retailers. an important dynamic of the value provided by a site involves the nature of the long-tail it offers. Specifically. metrics can be established to estimate the value per user and per piece of content. In a similar fashion. the rise of blogs has created literally millions of niche publications serving ardent readers. however. traditional media results in virtually no long-tail. Sites that engage their users for long periods of time clearly deliver significant value.

This user-generated content differentiates social web sites from traditional media by creating a long-tail of content that generates significant user value. We define the area within the long tail and propose two metrics: Tail Factor and Monthly Value of Tail Long tail = Area to the right of the top 1% of content items Tail factor = 1 – [Total value created by top 1% of content items / Total value created by the website] Tail value = Tail factor * Value created An important metric for the success of a social web venture is the size of its tail.0 ventures had a long. content generated by consumers is limitless. This in turn better tracks the presumed value capture opportunities in the future. reviews. The tail value captures this value. value for social web ventures should be measured by the area under the curve. This is a conservative assumption and as ventures evolve this value is likely to increase. Before the emergence of social web ventures. Examples include web 1. It is relatively easy to estimate the value of popular content as it constitutes a very small fraction of the total number of contents. we believe that an ideal social web venture should offer highly popular content as well as a long tail to generate significant value. Therefore. Contributory factors Social web sites are commonly valued based on their unique visitors.0 digital photo sites like Ofoto and Shutterfly that enabled the sharing of online photo albums along friends and family. Social media has changed the equation substantially. Page 14 of 25 . and comments. Individual creators can now not only share their content with a mass audience but also involve them by encouraging them to create ratings. most web 1. the catalog of material grows dramatically in terms of size and variety. It is relatively difficult to estimate the tail factor. As consumers move up the user participation hierarchy to create their own content. As a result. This measurement accounts for traffic on popular content as well as the long tail. Nevertheless. The first implication of our analysis is that valuation should instead be based on value created with further refinements based on the tail value. Although photos could be shared.In contrast. flat curve of value provided by their content. The longer and thicker the tail. consumers were limited to viewing and could not interact further with this content. Our findings suggest that the value in the long tail outweighs the value of the popular content. particularly as time-based advertising metrics become more common. this user-generated content was viewed only by small number of people who were typically part of a creator’s network. the area under the curve in the long tail portion is more than the area under the curve in the high frequency range6. the more unique and targeted value the site is providing to its users. Based on our definition of the tail factor we see that roughly 60% of the value lies in the long tail.

and reduced barriers to use. The quantifiable result of improving these factors can be evaluated using the calculated value to each user. Wired. The net value proposition to consumers is: Net value to user = Value created * Utility of the value – Effort required It is hard to quantify utility and effort as it is unique to each individual but the essence is that users are driven by benefit which is directly proportional to the Value created and hence the focus should be placed on factors that encourage value creation. thus leading to more usage. many social web sites have little leverage over direct value contributions. The main factors have been enumerated below. leading to maximum net consumer value. Unfortunately. One method available to some sites is to contract with outside sources 6 "The Long Tail" by Chris Anderson. Direct value contributions: • • • • • • • • • • • Content volume Content variety6 Content quality Community interactions Ease-of-use Speed and responsiveness Reliability Easy to find desired content Minimal extraneous intrusion (e. Direct value contributions concern the core value proposition of the site.g.Underlying the objective measurement are a number of qualitative factors that contribute to enhancing consumer value. typically the content itself. We distinguish between two types of qualitative factors contributing to consumer value: direct value contributions. Oct. advertising) Free Easy to share / embed Reduced barriers to use: Therefore. 2004 Page 15 of 25 . sites can improve results by working to improve value provided while minimizing consumer effort. Reduced barriers to use involve usability and access issues that enable loweffort consumer capture of the direct value contributions.

The expected value for a contribution is equal to the views or comments associated with the median content contribution. Therefore. the higher the expected value of contribution. it seems likely that consumers engage in an implicit evaluation of the expected value to them of contributing to a site. Therefore. required the use of a downloaded client application in order to upload videos up until May of 2006 – almost a year after YouTube’s launch. as described in Maslow’s Hierarchy of Need. Expected value of contribution Our second rule involves encouraging and facilitating movement up the value creation hierarchy. The most fundamental perceived value is positive social feedback. and comments on it.for particularly high quality content. Meanwhile. Increase expected value • No editorial filter Page 16 of 25 . has been working to build relationships with major media companies to host their content. sites have significant control over barriers to contribution. and reduced contribution effort. she also takes into consideration the effort required to do so: Net expected value = Expected value – Effort required Contributory factors Again we distinguish between two types of qualitative factors leading to movement up the hierarchy: increased expected value.g. The more views and comments a user expects. tail). forming a complete bar to certain aspects of direct value contribution. The greater the magnitude of use for a given distribution (e. The longer the tail. the expected value to an individual assuming median response is: Expected value = Value of median catalog item The tail value is a proxy for calculating the aggregate value to site contributors. Given the unique value proposition of the long-tail content. many sites fail to take fundamental measures to reduce barriers. When a YouTube user uploads a video and embeds it on her web page. Her measure of the success of her efforts is the manifestations of interest by the online community. YouTube. the more value associated with the contribution. Google Video also to this day lacks fundamental community features such as user pages. Google Video. Still. the more likely a user’s contribution will achieve some measure of recognition. These manifestations include views of her video. for example. When a user evaluates contributing to a site. she hopes to communicate and share with others. Consumers move up the user participation hierarchy due to perceived return value for their contribution. for example. usergenerated content is critical to achieve the variety and volume of content necessary for success.

) roughly follows a power distribution and is inversely proportional to a power of the rank on the frequency plot: V e alu = A* R ank −B where A and B are constants for a particular website Factors discussed earlier contribute to the magnitude of the two constants and give a measure of the success of a venture. therefore. a higher value of A is favorable. In order to show the utility of this measure. Specifically. we will apply our framework to the online video segment.) Direct contribution through web (no downloads) Speed and reliability Ease-of-use Reduce creator effort Applying the framework We can now apply these quantitative and qualitative tools to analyze social web ventures. we found a consistent pattern of user behavior that clearly differentiates social web ventures from traditional media. The value for online videos is measured in terms of number of views per video and can be roughly projected as: V lu a e = A* R k an − .• • • • • • • • • Easy to find consumer generated content Easy embedding / sharing options Social recognition features (identity. The value of B determines the size of the long tail. We found that content when ranked based on value (time spent.) Instant gratification Compensation / revenue sharing Transparency of recognition (view counter. this analysis can be applied to evaluate the success of players within various segments of the social web. etc. comments. the value of A depends on the total traffic to the website. More importantly. a lower value of B (or a higher exponent) creates a fatter long tail for a given value of A.8 0 It is important to note that the power law is an approximation as the number of videos is not infinite. Overall. Total views and tail length should be taken into account in addition to the power curve. Page 17 of 25 . views. badges. etc. responses. etc.

. Web Traffic Grows 17 Percent Week Over Week.Table 1: Metrics for Social video sites* * Numbers gathered from the public data available (retrieved April 2007) on the sites as well as secondary research from published articles and reports (hitwise. Nielsen Media Research (2006-07-21). Nielsen media research) 7 [ continued on next page ] 7 YouTube U. Netratings. Page 18 of 25 . Inc. According to Nielsen//Netratings (English) (Press Release).S.

An evaluation of qualitative tools across the three online video players show that YouTube offers the most robust features to effectively facilitate greater engagement from its users. 14 Page 19 of 25 12 . YouTube succeeds by hosting videos that attract a high volume of users (higher value of A) as well as hosting user-generated videos that create user value by establishing a long-tail of content (lower value of B).Figure 5: Value Distribution for Top Online Video Sites Social value for YouTube = 4*e7 * Rank-0. 8 Social value for Metacafe = 2* e7 * Rank-0.82 The social value distributions for the top players within online video confirm the dominance of YouTube over MySpace Video and Metacafe. from consumers to creators.78 Social value for MySpace = 2* e7 * Rank-0. The large size of YouTube’s long tail illustrates that YouTube has been successful in moving its users up the User Participation Hierarchy.

pure social web ventures that are comprised entirely of user-generated content would have extremely flat consumer value distribution curves (value of B = 0). leading to larger long-tails within consumer value distribution curves (smaller values of B compared to online video). Online video illustrates the successful use of traditional. these fans moved up the user participation hierarchy to create their own profiles as • Content volume Page 20 of 25 . mainstream content to generate high levels of user-generated content. Nevertheless.Table 2: Evaluation of Qualitative Tools for Users of Online Video Sites Source: own analysis Looking beyond online video. we believe that it is important to have a few content items that attract large audiences in order to build a strong base of users throughout the user participation hierarchy. Unlike online video. Eventually. MySpace is the only player within social networking which has successfully applied this strategy. we can apply our framework to other areas of social web ventures including social networking and online photo sites. Theoretically. Nevertheless. these sites attract high levels of user-generated content. Beyond online video. leading to profiles that gained enormous audiences (high value of A). MySpace established its dominance by initially focusing on building a core community around musicians and their fans. both online photos and social networking generally lack individual pieces of content that attract large volumes of users (smaller values of A compared to online video).

Such an outcome will allow social web sites to gradually overtake the function of media content providers. with a more rapid decline to a relatively stable long tail. creating strong network effects. A likely model for the future is cooperation of established social web sites with traditional media providers. event. However traditional media companies are also considering alternative options to partnering with established Page 21 of 25 . Online video demonstrates a characteristic high peak with a relatively smooth decline over a long tail. This is based on the relatively small universe of truly exceptional photos contrasted with the mass of more traditional family.well as attract additional users to MySpace.g.g. Prototypical online video curve Prototypical online photo curve Value Provided Value Provided Value Provided total value provided total value provided total value provided Catalog of content Catalog of content Catalog of content Future Integration of traditional media with social web ventures Successful examples of social video and social bookmarking sites prove that the best value for consumers is a mix of user generated content and traditional media. MySpace continues to attract and engage users through profiles that are a mix of celebrities and individual users. This large and involved user base led to the development of an enormous long-tail within the consumer value distribution (lower value of B). For YouTube. Traditional media benefits from substantial incremental traffic for their content. resulting in a nearly flat curve. and affinity photographs on sites such as Flickr. Even more than photo. Social web ventures benefit from increased traffic and consumer value by integrating traditional media. Such mixes of content allow the traditional media distribution graph to overlay the longer-tailed new media graph. traditional media clips continue to be some of the most important drivers of traffic. there are few standouts with relatively little differential from the mainstream members. selected leading newspapers (e. In terms of news media. e. This combination provides greater total value to social media companies. The prototypical curves for three of the primary social web categories are shown below. social media and traditional media companies have started to join forces. As is expected. people. We hypothesize a relatively lower peak for online photo. and a relatively strong field of mid-popularity content. The New York Times) unveiled a service that allows readers to quickly post stories that they find on the newspapers’ Web sites to leading social bookmarking sites. This demonstrates a number of highly popular videos. Social networking has an even flatter curve based on the wide variety of content.

Through such mutual cooperation sites can focus on their core activities and allow their users to benefit from services provided by other specialized sites. AOL. YouTube could lose its position as the Web’s most popular video site. 8 “NBC. News Corp. Their value creation cycle could be severely disrupted with the loss of high-consumption content. however. As user generated content moves mainstream.cnn. It does not take much imagination to envision Apple.com. companies such as TiVo and Sling Media have the capability to extend social media’s distribution beyond PC and devices and into the living room. may be the company that controls the home media hub. Very important to the future of the social web space will be the outcome of Viacom’s recent lawsuit against YouTube. with its iTunes media platform. It makes sense. MSN and Yahoo. accusing them of “massive intentional copyright infringement. Walmart. though.com/2007/TECH/biztech/03/13/viacom.sites. http://news. and Sling Media will likely gravitate towards the user generated content space. CNN.html?tag=nl.zdnet. Meanwhile. there will be an increasing convergence and blurring of the lines between these companies. as well as incorporating user-submitted content. TiVo. three of the Web's largest Internet portals. 03/13/2007. that YouTube. YouTube and Photobucket are examples of initial success stories of this strategy by unofficially partnering with MySpace.html Page 22 of 25 . Amazon. and MySpace all benefited from these relationships because the end result was enhanced consumer value for all of their users leading to increased traffic. push new Web rival to YouTube”. In March 2007 Viacom sued Google and YouTube for more than $1 billion9. numerous new ventures have focused on adding or extracting some value as partners (both official and unofficial) of these premier sites. by Dawn Kawamoto and Greg Sandoval.e589 9 “Viacom slaps Google with $1 billion lawsuit”. online retailers. http://www. ZDNet News. which plan to compete with YouTube8. Photobucket. As these partnerships between social and traditional media companies increase. The digital media distribution companies such as Apple. The new provider intends to charge for movies that will be made available for download to own.com/2100-9588_22-6169651. These companies will allow social media companies to deliver their content ubiquitously and enhance the value to consumers. Collaboration and competition among social web ventures As certain social sites have established themselves as premier destination sites on the web. 03/22/2007. They can try to provide distribution of their content on their own or partner with new market players. delivering the best user generated content onto people’s media devices.” If other traditional media companies follow Viacom and support smaller rivals in the market.ap/index. An interesting player. announced that they will distribute video content for a new online joint venture of media conglomerates NBC Universal and News Corp. An example is an announcement of a group of internet portals and media giants.youtube. such as Amazon and Walmart may have difficulty moving into this space because they lack control of the entire platform.

In addition. and Greg Sandoval. The most vulnerable companies to this danger are the ones that are entirely dependent on partner sites. Features that are innovative today will most likely become commonplace within a year. if they want to remain market leaders. their partners may move to a defensive position.businessweek. Business Week Online.html Page 23 of 25 . Social websites have elevated switching costs by encouraging users to establish social credibility within their communities. even an established website is likely to lose its user base. and encourage consumer movement up the hierarchy. So established social web companies must consistently adapt and innovate to remain value leaders.g.onlineentertainment/article. Vulnerability to earlier lifecycle startups Social web companies are vulnerable to new competition.Yet one must note the danger in relying too heavily on a growth strategy that is dependent on partners. Due to low switching costs and a high rate of value commoditization. 04/11/2007. the social web is a space where first mover advantages are not as strong as in traditional industries. These network externalities will begin to play a more important role for social web companies that establish a 10 “MySpace blocks Photobucket videos and slide shows” by Caroline McCarthy. One thing to note.htm 12 “Photobucket Rules its Market” by Juan Carlos Perez. These hyper-aggregators of social network connections.com. videos. Because of the nature of the web. but attainable. ending any partnerships. user generated videos or photos).130488-c. switching costs are relatively low between most websites. 04/07/ 2007. These forces have become stronger and stronger as social websites have moved mainstream. http://www. established social web companies must continue to provide superior value to consumers. 07/19/2005. Every new feature a competitor releases shifts users expectations and perceptions of value.com/article/id.html 11 “News Corp. their inherent value as hyper-aggregators may be lost. It seems that once a competitor demonstrates a greater amount of value to its users. Yet even this hurdle can be overcome as we have seen users shift in large numbers from Friendster to MySpace11 and Flickr to Photobucket12. http://www.pcworld.com/MySpace+blocks+Photobucket+videos+and+slide+shows/2100-1026_36175272. YouTube videos. However. The effort that was needed to convert 2 million Friendster users to MySpace users was substantial. however. is the strength of network externalities. the effort needed to convert 100 million MySpace users – with their integrated Photobucket photos. As a result. Beyond a list of friends and profile information. In order to remain successful. Therefore a company that focuses on providing value to its consumer cannot depend on existing popular features to create substantial consumer value for very long. or photos inherently create little internal value. as they inevitably try to create internal content (e. there was little to keep users on Friendster. MySpace’s recent blockage of Photobucket videos and slideshows10 indicate that cooperation can only be taken to a certain point. http://news.com/technology/content/jul2005/tc20050719_5427_tc119. PCWorld.'s Place in MySpace” by Steve Rosenbush. and blog postings – to somewhere else is magnitudes greater.

most successful new startups in this space will serve niche groups. investors.com/2007/02/22/67-foreign-languagesocial-bookmarking-sites-revealed/ 2.'s Place in MySpace” by Steve Rosenbush. particularly within segments. Analysis of the long-tail of consumer value provides useful insight into the value provided to consumers. successful sites facilitate movement of the user participation hierarchy.businessweek. “MySpace blocks Photobucket videos and slide shows” by Caroline McCarthy. and evaluating progress. tailored features. a market segment. Monday Memo. and a number of quantitative tools to evaluate performance. Second. The most successful sites focus on providing value to consumers. and entrepreneurs can measure the success of an individual company. analysts. To maximize positive network externalities. Social web ventures leverage innate human social needs to offer superior value to consumers. First. and substantial positive network externalities resulting in a sustainable competitive advantage.mondaymemo. facilitate movement up the value creation hierarchy. Conclusion Our research demonstrates that social web ventures share many similarities. 04/11/2007. recognizing that other constituencies such as creators will thereby benefit. By evaluating historical performance and analyzing underlying trends and drivers. leading to a positive growth loop.htm 4. Jason Bartholme’s SEO Blog. 07/19/2005. or an entire industry.html “News Corp.net/000724feature.com. “67 Foreign Language Social Bookmarking Sites Revealed”. Therefore. these companies can demonstrate substantially higher value for a set of customers by providing unique. “Drugstores. References 1. which in turn affects enterprise value.htm 3. Page 24 of 25 .com/technology/content/jul2005/tc20050719_5427_tc1 19.com/MySpace+blocks+Photobucket+videos+and+slide+shows/2 100-1026_3-6175272. The result is exponential growth in enterprise value.jasonbartholme. Business Week Online. focus on providing consumer value. We have proposed objective measurements that can be useful in setting strategies. By focusing their user base. we propose two fundamental rules of the social web. http://www. http://news.dependent ecosystem around them. and Greg Sandoval. WebVan and Dot-Com Failure”. http://www. http://www. By utilizing these measurements and our consumer value framework.

Winter 2003 11.onlineentertainment/article.html 13. http://www. push new Web rival to YouTube. Timo Hannay.cnn. http://news. Martha Turner.com/2006/12/26/social-bookmarking-2006-a-year-inreview/ 9.html 12. s+b.A General Review” by Tony Hammond. D-Lib Magazine. 03/13/2007. NBC. YouTube U.e589 6. http://www. CNN. Wired. “Will MySpace Block Photobucket?” by Thomas Hawk. Oct. News Corp.org/dlib/april05/hammond/04hammond. “The Long Tail” by Chris Anderson. and Ron Wilcox. 12/26/2006. Page 25 of 25 .archive. http://www.130488-c. ZDNet News. and the Beautiful” by Tim Laseter.html?tag=nl.dlib. “PhotoBucket Videos Blocked on MySpace” by Michael Arrington. “Viacom slaps Google with $1 billion lawsuit”.com/article/id.html 14.S.5.wired.html 10.youtube. Tech Crunch.com/wired/archive /12.pcworld.ap/index.com/2007/TECH/biztech/03/13/viacom.com/2100-9588_226169651. the Bad.com/2007/01/will-myspace-blockphotobucket. PcWorld. “Social Bookmarking Tools (I) . 03/22/2007. by Derek van Vliet. According to Nielsen//Netratings (English) (Press Release). http://web. Inc.A Year In Review”. 2004. Netratings. Thomas Hawk's Digital Connection. http://www. 04/07/ 2007. Ben Lund. Nielsen Media Research (2006-07-21).com/2007/04/10/photobucket-videosblocked-on-myspace 8. and Joanna Scott. April 2005.html 7.blogherald. http://thomashawk..techcrunch. The Big.com. http://www. 01/18/2007. “Photobucket Rules its Market” by Juan Carlos Perez.org/web/20041127085645/http:/www. Web Traffic Grows 17 Percent Week Over Week. 04/10/2007.zdnet.10/tail. By Dawn Kawamoto and Greg Sandoval. “Social Bookmarking 2006 .

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